Talks over boosting Illinois Medicaid payments fail

[June 27, 2017]  CHICAGO (Reuters) - A U.S. judge should order Illinois to pay Medicaid providers about $1 billion a month to ensure medical care continues for the three million recipients of the health program after talks with the state reached an impasse, according to a court filing on Monday.

The move would cause a huge problem for the cash-strapped state, which has accumulated a $15 billion bill backlog due to a budget stalemate between its Republican governor and Democrats who control the legislature. It could force Illinois to stop making full payments on other state-mandated or court-ordered spending such as pensions and payroll.

The filing in U.S. District Court by attorneys representing Medicaid recipients asked Judge Joan Lefkow to order the state to pay $500 million a month for four months to start reducing a $3.1 billion pile of unpaid bills owed to managed care organizations that turn pay doctors and others.

As long as Illinois remains without an enacted budget, the proposed order calls for the state to spend an additional $586 million a month to cover Medicaid-related bills incurred after June 30, 2017.

The proposed order noted that federal reimbursements for Medicaid would reduce Illinois' outlay to $543 million a month.

The two sides are scheduled to appear on Wednesday before Lefkow, who previously ruled Illinois' minimal payments to managed care organizations did not comply with federal consent decrees that resulted from two cases filed against the state in 1992. The judge had ordered negotiations aimed at getting Illinois to "substantial" compliance with the decrees, noting the state has managed to make its monthly bond and pension payments on time and in full.

Monthly payments related to the Medicaid and other consent decrees have totaled only about $160 million.

In the wake of Lefkow's order, Illinois general obligation bond prices plummeted and yields soared in U.S. municipal market trading, although the bonds subsequently clawed back some losses. The state comptroller last week pledged to not delay or diminish debt service payments.

There was no immediate reaction to the court filing from the Illinois Attorney General's office.

Rauner ordered lawmakers back into a special session, which began June 21 and is scheduled to end on Friday, to pass a budget before fiscal 2018 begins on Saturday.

Entering a third-straight fiscal year without a spending plan could sink Illinois' credit ratings to "junk," a first for any U.S. state.

(Reporting By Karen Pierog)

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